Listing hopefuls on Beijing bourse slash floor IPO prices

© Reuters. FILE PHOTO: A sign of Beijing Stock Exchange is seen at a counter during an organised media tour, in Beijing, China February 17, 2022. REUTERS/Florence Lo

SHANGHAI (Reuters) - A growing number of listing applicants on the Beijing Stock Exchange are slashing the floor prices of their planned initial public offerings (IPOs), as the pandemic-hit companies seek to lure investors in a sluggish corner of China's reviving stock markets.

The move by nearly a score of IPO hopefuls - including green tech firm Polygree and wireless solution provider Lierda - to lower their minimum offer prices over the past month is being hailed by some investors who expect more market-oriented price-setting on the Beijing bourse.

Unlike the Shanghai and the Shenzhen stock exchanges, the Beijing Stock Exchange - set up about a year ago to fund small companies - require that IPO candidates set a floor price for their share sales to protect the interest of existing shareholders.

Despite a recent share price rally in China on the back of post-pandemic recovery hopes, trading on the Beijing Stock Exchange remains depressed, forcing companies to be practical in their IPO fundraising plans.

Polygree has slashed its minimum IPO offer price to its book value of 5.79 yuan a share, 64% lower than the floor set in June, according to its latest prospectus this week. The company said its net profit nearly halved during the first six months of 2022 due to the COVID pandemic.

Lierda, also slashed its IPO price floor close to its book value of 1.72 yuan per share, from 8 yuan previously, representing a nearly 80% fall. The company's net profit fell 30.9% in 2022 from the previous year partly due to COVID-19.

Other companies that reduced IPO price expectations include Shandong Inov Polyurethane Co, Xinganjiang Pharma and Sichuan Kezhi Civial Defense Equipment Co.

The rush to slash floor prices is the result of the companies' blind confidence previously, anaemic trading on the Beijing Stock Exchange, and a desire to woo investors, said Zhou Yunnan, founder of NS Capital Ltd.

Beijing Stock Exchange's benchmark index the BSE 50 trades at 21 times earnings. In contrast, Shanghai's tech-heavy STAR Market trades at a price/earning ratio of 45, while Shenzhen's start-up board ChiNext trades at an earning multiple of 39.

"For investors on the Beijing bourse, this is really good news as ... lower IPO prices create bigger room for profit" after the IPO shares begin trading, he said.

The view is echoed by SWS Research, which said in a note: "pricing power is given to the market. Superior companies would be selected, while the inferior would be eliminated."